Low diesel prices help farmers a little, but not a lot
Diesel demand is up thanks to planting and low prices, but it won't make much difference to farmers' bottom lines.
When North Dakota State University put together its 2020 crop budgets, it included diesel prices of $2.45 per gallon. Now, in the midst of the COVID-19 pandemic, bulk farm fuel in many places has dropped more than a dollar lower per gallon.
But NDSU crops economist Frayne Olson says that in the grand scheme of things, the dramatic drop in fuel prices won’t make a big difference on farmer break evens.
“It’s something to point to and say, ‘Well, it’s not all negative,’” he says.
When compared to other inputs, fuel prices per acre are a pretty small piece of the expense picture, Olson says.
“Cost savings have been minimal,” he says.
Even so, farmers are trying to capitalize on that one positive point, says Jason Schwantz, senior vice president of refined fuels at CHS Inc.
“We have actually seen an increase in our … diesel fuel sales in the last, probably, month and a half,” he says.
Part of that increase in sales is just that it’s “that time of year,” when farmers typically fill up their storage tanks as they get into the fields, Schwantz says.
Last year was a down year for diesel demand amid wet conditions that led to high prevented planting acreage.
“This year is a little bit stronger. I think the price has really enticed people to fill up early,” Schwantz says, adding that he anticipates some farmers will fill up again instead of waiting until they need more fuel.
“This is some the lowest prices for fuel we’ve seen in a long time,” he says. “I see this as an advantage for the American farmer.”
However, Olson says he’s talked to farmers who indicate they wouldn’t mind seeing higher fuel prices if it meant higher crop prices.
“Farmers understand that: I’d happily pay for expensive diesel fuel if the price of grain was higher,” he says.
Evaluating overall impacts
Olson says forecasting how the COVID-19 pandemic will continue to impact agriculture is difficult.
“Realistically, we’re all making this up as we go,” he says.
But some things are clear, including that the recovery from the pandemic will be slow. Olson expects energy prices to stay depressed for some time, which could bring down the cost of other inputs. Propane in the fall for drying grain could be less expensive, and next year’s fertilizer, made with natural gas, could be as well.
However, other crop prices are going to be more volatile. Olson explains that the price of corn, because of ethanol, is tied closely to the price of fuel. If there is an excess of fuel and ethanol plants continue to run below capacity, the price of corn also will remain low.
Olson isn’t recommending anyone overhaul their planting plans in reaction to the current market situation, though he says they should take a serious look at their intentions. He believes there may be a good time for marketing old crop and new crop in July and August amid questions about weather and crop size.
“This is going to be pretty sporadic. It’s going to be very short lived,” he says.
Even with the tough economic situation, Olson believes agriculture will come back faster than other segments of the economy.
Schwantz says CHS is keeping up with the fuel demand. One challenge has been that the decrease in gasoline demand could mean pipelines will get clogged up with gasoline and make it harder to keep up with diesel demand. But he says that hasn’t happened yet.
“Our refineries are running well. We are keeping our pipelines and terminals as full as we can,” he says.
The fuel CHS delivers in this region starts out at the company’s refinery in Laurel, Mont. From there it travels 3 to 5 mph in pipelines to terminals. Transport trucks pick up the fuel at terminals and take it to cooperatives, which then deliver to farmers.
The CHS employees involved in the process have little contact with other people, so COVID-19 precautions haven’t made a large difference in operations, Schwantz says.
“Safety always remains one of our top priorities,” he says.
And he anticipates cooperatives may be having drivers drop bills with customers without stopping in the house to chat or just having bills sent later.
“If you look at the cooperatives deliver, a lot of times, it’s a wave to the farmer in their house or around at their tractor,” he says. “I don’t think there’s a lot of human contact anyways.”
Schwantz, who farms on the side of his work at CHS, says farmers who have capacity should take advantage of the present diesel pricing opportunity.
“They’re probably not going to stay there forever,” Schwantz says.